Kinder Morgan (KMI +2.85%) made a lot of money in 2023. The natural gas pipeline giant recently reported that it hauled in over $4.7 billion of distributable cash flow for the year. While that was down from 2022's total due to lower commodity prices and higher interest rates, it was more-than-enough cash to cover the company's 6.4%-yielding dividend.
The natural gas infrastructure giant expects to make even more money this year. It recently closed its acquisition of STX Midstream from NextEra Energy Partners, which will give it more fuel to grow its profits in 2024. Here's a look at last year's solid results and the company's expectations for the coming year.
NYSE: KMI
Key Data Points
Steady as it goes
Kinder Morgan recently reported its latest financial results. The pipeline company generated nearly $1.2 billion of distributable cash flow during the fourth quarter, pushing its full-year total to $4.7 billion.
While that was down about 4%, compared to the year-ago quarter, and 5% for the full year, Kinder Morgan's results were only slightly below its budget, due to the impact of lower-than-expected commodity prices. The company had anticipated a decline due to higher interest rates.
Overall, the company made more money last year in three of its four operating segments:
Data source: Kinder Morgan. Chart by the author.
As that table shows, the lone laggard was the company's carbon dioxide segment, where earnings fell 14%. That business unit uses carbon dioxide to pump oil and natural gas liquids (NGLs) out of legacy fields through a process known as enhanced oil recovery. Because of that, it's more sensitive to changes in commodity prices.
During the fourth quarter, Kinder Morgan sold the NGLs it produced for 21% less than in the year-ago period, while its realized carbon dioxide price was down by 6%. Meanwhile, the company also pumped out less crude oil in the period (7% lower).
While carbon dioxide segment earnings were lower, Kinder Morgan's natural gas earnings were up 4%, product pipeline profits rose 2%, and terminal income increased by 7%. The company benefited from recently completed expansion projects and higher volumes and rates.
Earnings should rebound in 2024
Kinder Morgan expects its cash flow to rise this year. It recently updated its 2024 financial expectations to reflect its recently closed acquisition of STX Midstream from NextEra Energy Partners. The company now expects to produce $2.26 per share of distributable cash flow in 2024, an 8% increase from last year. That's up from its initial expectations that it would produce $5 billion, or $2.21 per share, of distributable cash flow, a 5% increase from 2023.
In addition to the boost from STX Midstream, Kinder Morgan will benefit from recently completed expansion projects. The company completed $800 million of projects in the fourth quarter of last year alone, including expanding its Permian Highway Pipeline, upgrading the Tennessee Gas Pipeline's East 300 line, and finishing the Freer to Sinton project on its Texas Interstate system. Kinder Morgan also completed three renewable natural gas facilities last year and expects to finish another in the second half of 2024.
The company's growth-related investments will give it the fuel to increase its already high-yielding dividend by around 2% in 2024. Even with that increase, the company will have a low dividend payout ratio (51%). That will enable it to retain significant cash to fund expansion projects and maintain a strong balance sheet.
It expects to end the year with a 3.9 times leverage ratio, well under its long-term target of 4.5 times. That gives it the flexibility to opportunistically repurchase shares and make additional acquisitions.
A cash-producing machine
Kinder Morgan's business model generates lots of steady cash flow. That gives it the funds to pay a very attractive dividend while continuing to invest in its growth (providing it with more fuel to steadily raise its payout). With more growth ahead, Kinder Morgan is an excellent option for those seeking low-risk income and growth potential.
